How Much Life Insurance Is Enough?

Last week’s schedule happened to involve more travel than usual. In the span of five days I found myself in Omaha (at home), Des Moines, New York, Chicago, and Denver. On each of those days I followed my usual routine of waking up early to get in a workout and watch the local news. By the fourth or fifth day, something stood out to me. In each city, each morning, the local news reported the unexpected death of someone in the community. A drunk driver took the life of a 36-year-old father and his son, leaving a mother and two children. A small plane crashed in Chicago, taking the life of a 51-year-old business executive. In another city a young police officer was gunned down in the line of duty.

Each of these incidents abruptly altered the lives of people whom the deceased loved very much. In most of these circumstances family and friends had set up GoFundMe pages to raise money to help the family get through the difficult time. One fund had raised $12,000. Although I am certain the families appreciate the effort, the money will do little to ease the emotional burden they are suffering. Even worse, as the family begins to cope with their loss emotionally, they will realize that those well-intended donations have done little to lighten the tremendous financial burden of losing a breadwinner.

Maybe some of the people in these horrible accidents had life insurance policies in place. If the statistics are accurate, however, most were either uninsured or underinsured. Even if they did have life insurance policies, they probably had far too little coverage to provide their families with a financially secure future. I am sure that every one of these people knew a financial advisor. They knew property and casualty agents. They knew health insurance agents. They knew people who could have helped to lighten the financial burden on the bereaved but likely did nothing to help.

I would ask that you begin to be the exception to the rule. Life insurance is much easier to obtain today than it was in the past. This is especially true of term life insurance. How can you figure out whether to talk with clients about term insurance? The answer is simple: if you currently help a client whose loved ones would be financially devastated by their untimely death, ask them to at least look at life insurance. If they choose to turn down that option, at least you offered to help.

If they agree that obtaining life insurance is a good idea, how much coverage will be enough? You can figure out the number quite easily. I recommend using the following simple three-step formula that I developed to determine the amount of term insurance I currently own. First, if I die I would prefer that any debt that I have be paid off to relieve my wife of the burden of future payments, so I added up the balances on the mortgage, the car loans, and any other payments that could become a burden. Second, I want to ensure that both my kids can go to college. Although they have college funds in place, I added a death benefit to get them a lump sum to cover college. Third, I want my wife to receive the equivalent of 10 years of my income to help her finish raising our children.

Obtaining the right amount of term life insurance is easy, but the results are profound. I know that if I die unexpectedly, my family will live in our home, paid for. My wife will have transportation, paid for. My children will get a quality education, paid for. My wife will have an income stream for a decade, paid for. The most amazing part is that I am spending less per month for that coverage than the cost of taking my family out to a great restaurant when we’re on vacation.

Think about your clients who have families. Talk with them about getting coverage and how much it could cost. It is often less expensive than they expect, and most want to do the right thing for the people they love.

Special thanks to Dan Allison, founder of the Feedback Marketing Group, for his contributions to this article. Feedback Marketing Group helps wealth management firms and advisors become more effective at earning referral business from clients. Dan is also the Managing Partner of Brokers Clearing House, providing insurance planning to financial advisors and their clients to ensure the clients receive the most objective and unbiased life insurance advice available in the independent space.

The views expressed represent the opinions of the author which are subject to change and are not intended as a forecast or guarantee of future results. Stated information is provided for informational purposes only, and should not be perceived as investment advice or a recommendation for any security. While Loring Ward believes the information to be accurate and reliable, we do not claim or have responsibility for its completeness, accuracy, or reliability. Statements of future expectations, estimates, projections, and other forward-looking statements are based on available information and the author's view as of the time of these statements. Actual results, performance or events may differ materially from those expressed or implied in such statements. past performance of various investment strategies, sectors, vehicles, and indices are not indicative of future results.